MICHAEL OCHOADA SINOCRUZ

1
 Depletable and Renewable Sources

Resource Taxonomy

Classification of Depletable Resources:

❑ Current Reserves – known resources that can be profitably be extracted at current

prices

❑ Potential reserves – the amt. of reserves potentially available that would depend
on price people are willing to pay for those resource.

❑ Resource Endowment – the natural occurrence of resource in the earth’s crust.

22
 Depletable and Renewable Sources
Resource Taxonomy

o Depletable Resource – the rate of replenishment for these resources is so low that it
does not offer a potential for augmenting the stock in any reasonable time frame.

o Recyclable Resource – one that, although currently being used for some particular
purpose, exists in a form allowing its mass to be recovered once that purpose is no
longer necessary or desirable.

Stimulant for this replenishment is price. Higher prices also stimulate technological
progress

o Renewable Resource – natural replenishment augments the flow of such resource at a

non-negligible rate.

For some renewable resources, the continuation and volume of their flow depend
crucially on humans like fish production and soil erosion and nutrients depletion.

33
 Depletable and Renewable Sources
Efficient Intertemporal Allocations

❑ Dynamic efficiency criterion assumes that society’s objective is to maximize the

present value of net benefits coming from the resource

The Two-Period Model

❑ Production decisions today must take foregone future net benefits into account.
❑ Marginal user cost is the opportunity cost measure that allows intertemporal
balancing to take place.

▪ The marginal user cost rises in an efficient allocation in order to preserve the balance
between present and future production.

44
Constant Marginal Extraction Cost
with No Substitute Resource

55
 Constant Marginal Extraction Cost
with Substitute Resource
What will happen if substitute or renewable sources are available?

66
 Transition from Constant-Cost
Depletable Resources to Another

77
Increasing Marginal Extraction Cost
with Substitute Resource

88
 Depletable and Renewable Sources
Appropriate Property Rights Structure

o As long as the property rights governing natural resources have the

characteristics of exclusivity, transferability, and enforceability, the market in
w/c those resources are bought and sold will not necessarily lead to myopic
choices

Potential Source of Value to Resource Owner

o Use Value when it is sold

o Asset Value when remains in the ground

Since higher prices in the future provide an incentive to conserve, a producer who ignores
this incentive would not be maximizing the value of the resource.

99
 Depletable and Renewable Sources

Environmental Cost

Effects of including environmental cost

o Demand side – higher price

o Supply side – to hasten the switch to

renewable resources

10
10
 Increasing Marginal Extraction with Substitute
Resource in the Presence of Environmental Costs
Which effect dominates? Rate of consumption or supply effect?

11
11
12
 Depletable to Renewable Energy

Oil and Natural Gas

o Worldwide, together these energy resources supply about 60.0

percent

o Based on depletable resource model, oil and natural gas would

be used until the marginal cost of further use exceeded the
marginal cost of substitute resources like coal or solar energy.

o Adding coal (also a fossil fuel and depletable) increases the

share to around 85.0 percent

13
13
 Depletable to Renewable Energy
Natural Gas: Price Controls

❑ Natural gas is considered as associated gas of crude oil.

❑ Price ceiling would prevent prices from reaching their normal levels.

What would be the possible results of price ceiling?

❑ Price increases are the source of incentive to conserve

❑ Lower prices would cause more of the resource to be used in earlier year
since consumption levels would be higher
❑ Once marginal cost rose to meet the price ceiling, no more would be
produced.

14
14
 Depletable to Renewable Energy
Natural Gas: Price Controls

Important Aspects in Allocation

❑ Leaving more of the resource in the ground

❑ Increasing the rate of consumption

❑ Time of transition is earlier under price control

❑ Transition is abrupt with prices suddenly increasing

Price ceiling would reduce the marginal user cost because higher future
prices would no longer be possible
15
15
Depletable to Renewable Energy

16
16
 Depletable to Renewable Energy
Natural Gas: Price Controls

❑ When the marginal extraction cost ultimately reached the level of price control,
the amt. supplied would drop to zero.

❑ A shortage may be developed since demand would not be zero at that price.

❑ Scarcity rent is an opportunity cost that serves a distinct purpose – for the
protection of future consumers .

❑ In the long-run, price controls end up harming consumers rather than helping
them.
LNG imports have increased (Natural Gas is cooled to 259 degrees fahrenheit or 161
degrees Celsius).

17
17
 Depletable to Renewable Energy
Shale Natural Gas

❑ Middle of the first decade of the twenty-first century, when a new technology
dramatically changed the cost of accessing new sources of natural gas in
shale, a type of sedimentary rock.

❑ Hydraulic fracturing, or fracking as it is known popularly, is a form of technical

progress that combines horizontal drilling with an ability to fracture deep shale
deposits using a mixture of high-pressure water, sand, and chemicals.

❑ Introduction of this new technology has increased production dramatically in

the United States and fracked gas is likely to play an even larger role over the
next few decades

18
18
 Natural Gas in the Philippines

500 MW 1,000 MW 1,200 MW 97 MW 414 MW 17MW

Ilijan Power Plant Own-Use
San Lorenzo Sta. Rita Avion San Gabriel
NPC/BOT by Shell Tabangao
First Gen First Gen KEPCO First Gen First Gen Refinery
Malampaya
Deep Water-Gas-to-Power
Project Total = 3, 200 MW
2.7 TCF (2001)

19
19
 Natural Gas in the Philippines

Source Transmission Pipeline Offtakers

Imported LNG Gas Power

Stations

Distribution
LNG
Pipeline
Terminal
Distribution CNG Vehicles

New Domestic Gasfields

Commercial
Industries /Factories
Facilities

Households

20
20
 Depletable to Renewable Energy
Oil Cartel

o Price controls have also been responsible for mischief in the oil
market

o Most of the world’s oil is produced by a cartel called the

Organization of Petroleum Exporting Countries (OPEC), more
than a third of the world’s oil production

• Members of this organization can restrict supply and force

higher prices

21
21
 OPEC’s Share of Total Global Crude oil Production

Source: Statista 2022

22
22
 Depletable to Renewable Energy
Oil Cartel

Factors Contributed to Effective Cartelization

❑ Price elasticity of demand for OPEC oil both in the short- and long-run

❑ Income elasticity of demand for oil

❑ Supply responsiveness of the oil producers who are not OPEC members

❑ Compatibility of interests among members of OPEC

23
23
 Depletable to Renewable Energy
Oil Cartel

Price Elasticity of Demand

❑ Price elasticity of demand for oil depends on the opportunities for

conservation, as well as on the availability of substitutes

❑ It suggests that demand will be more price-elastic in the long-run than in the
short-run

▪ Availability of alternative fuels as substitutes

▪ Alternative sources exists although expensive

24
24
 Depletable to Renewable Energy

Oil Cartel

Income Elasticity of Demand

❑ Income elasticity is important because it indicates how sensitive oil demand is

to growth in the world economy

▪ At constant prices, as income grows, oil demand should grow. The

continual increase in demand fortifies the ability of OPEC to raise its price.

25
25
 Depletable to Renewable Energy
Oil Cartel

Non-OPEC Supplies

o Preventing new suppliers, not part of the cartel, from entering the market

o OPEC must take the non-members into account when setting the price

o Salant ‘s Model (1976) concludes that a resource cartel would set different
prices in the presence of a competitive fringe than in its absence

26
26
 Depletable to Renewable Energy
Oil Cartel

Non-OPEC Supplies

❑ Salant ‘s Model

▪ With a competitive fringe, cartel would set the initial price somewhat lower
than the pure monopoly price and allow price to rise more rapidly

What will happen?

It will force the competitive fringe to produce more in the earlier periods
(due to higher demand) and eventually exhaust their supplies

27
27
Historical Crude Oil Price, 1946-2021

28
28
 Oil Shocks

❑ First Oil Shock: 1973-1974 (Arab Oil Embargo)

❑ Second Oil Shock: 1978-1979 (Iranian Revolution)

❑ Third Oil Shock: 1980-1981 (Iran-Iraq War)

❑ Fourth Oil Shock: 1990-1991 (First Persian Gulf War)

❑ Fifth Oil Shock: 2007-2008 (Oil Price Spike)

29
29
 Depletable to Renewable Energy
Oil Cartel

Compatibility of Member Interests

❑ Cartel members have a strong incentive to cheat

❑ Another threat is when members fail to agree on pricing and output decisions

▪ Saudi Arabia has influence on pricing decisions - holding 33.0 percent of

OPEC proven reserves

❑ Alternative sources are not much of a threat in the near future - thus countries
with small reserves want to extract as much rent as possible

30
30
OPEC Share of World Crude Oil Reserves, 2018

31
31
Philippines Crude Oil Import Sources

Middle East – 95.7%

32
32
Philippines Petroleum Import Sources

33
33
 Depletable to Renewable Energy

Fossil Fuels: National Security and Climate Change

❑ All fossil fuels contain carbon

❑ Climate considerations affect energy policy in two ways:

▪ The level of energy consumption matters (carbon emitting sources are part
of the mix)

▪ Mix of energy sources matters (some emit more carbon than others)

34
34
Depletable to Renewable Energy

35
35
 Depletable to Renewable Energy
Fossil Fuels: National Security Dimension

❑ Determination of the appropriate balance between imports and domestic

production

❑ Policy choices on vulnerability to oil imports or making a balance between

imports and domestic production

▪ Energy conservation (tax on fossil fuel consumption)

▪ Subsidization of domestic supply

• It would increase long-run vulnerability

▪ Tariff or quota on imports

36
36
 Depletable to Renewable Energy
Other Depletable Sources

Unconventional Oil

❑ Sources that are typically more difficult and expensive to extract

▪ Extra heavy oil from Venezuela

▪ Tar-like hydrocarbon in Canada’s tar sands

❑ Emission of air pollutants are even greater for unconventional sources

37
37
 Depletable to Renewable Energy
Other Depletable Sources

Coal

❑ Is abundantly available, both globally and domestically

❑ It is high on sulfur content – sulfur dioxide emissions is one of chief culprits in
the acid-rain problem
❑ Major source of particulate matter, mercury and carbon dioxide
❑ Coal is heavily used in power generation – coal use is especially high in China
❑ Clean Coal Technology – Carbon Capture and Storage System

38
38
 Philippines Power Generation Mix, 2021

PEAK DEMAND Installed Generating Capacity* Power Generation**

16,036 MW TOTAL: 27,519 MW TOTAL: 102,177 GWh

11, 684 MW | 43% 59,439 GWh | 58%

LUZON: 11,640 MW Coal Coal
VISAYAS: 2,252 MW
MINDANAO: 2,144 MW 7,965 MW | 29% 22,523 GWh | 22%
Renewable Energy Renewable Energy

4,417 MW | 16% 1,466 GWh | 1%

Oil-Based Oil-Based

3,453 MW |13% 18,749 GWh |18%

Natural Gas Natural Gas

Source: NGCP *Preliminary DOE data as of Dec 2021 *Based on NGCP’s 2021 Gross Generation Data; Grid only and excludes off-grid generation and BESS

39
39
China Power Generation Mix, 2021

40
40
 Global Power Generation, 1990-2018

Source: IEA, 2020

41
41
National Security Problem

42
42
 Depletable to Renewable Energy
Other Depletable Sources

Uranium

❑ It is used in nuclear power generation

❑ Use of uranium in conventional reactors is about 4.2 times as great as oil and
gas. For breeder reactor, uranium is about 252 times the size of oil and gas

❑ Sources of Concern:

▪ Nuclear accident (ex. Chernobyl accident in Ukraine)

▪ Storage of radioactive waste

43
43
How Nuclear Power Plant Works?

44
44
How Nuclear Power Plant Works?

45
45
Number of Nuclear Power Plants Globally, 2021

United States of America

France
China
Russia
Japan
South Korea
India

30 Countries have Nuclear

Power Plants

World Total:
448 Reactor Units

46
46
Share of Nuclear to Power Generation

France 70.6%
Slovakia 53.1%

Ukraine 51.2%

Hungary 48.0%

Bulgaria 40.8%

47
47
 Bataan Nuclear Power Plant
• October 1977 - plant
construction began

• 1981 - Construction
resumed

• 1984 - BNPP was finished

and uranium fuel was delivered

48
48
Bataan Nuclear Power Plant
• April 1986 – the Cabinet
decided not to operate
PNPP • June 1986 – Pres. Aquino
issued EO 55 Transferring to
the National Government the
Philippine Nuclear Power Plant
I…

• 1990 - Uranium fuel was sold

and shipped out

49
49
 Depletable to Renewable Energy
Other Depelatable Sources

Uranium

❑ Nuclear Accident

▪ Radioactive elements could cause birth defects, cancer and death

▪ Core meltdown

❑ Radioactive waste would decay for about 100,000 years or more

50
50
Nuclear Waste Repository

51
51
 Chemical, Biological, Radiological and Nuclear
(CBRN) threats

CBRN Threat Spectrum

Nuclear Weapons
Potential Impact

Improvised Nuclear Biological Agents

Device (IND)

Radioisotopes
Nuclear
Facilities & Chemical Agents &
Transportation Industrial Chemicals
Likelihood (Threat)
52
52
 Depletable to Renewable Energy
Other Depletable Sources

Uranium

❑ The efficient level of precaution is the one that minimizing the sum of the costs
of precaution and the costs of the unabated damage.
▪ Role of gov’t in sharing the risk
▪ Role of insurance
❑ Compensation approach – 15% reduction in electricity rate in France
❑ In Japan (Ojika), those consuming nuclear power would be taxed to
compensate those who live in the areas of disposal site.

53
53
Depletable to Renewable Energy

54
54
 Depletable to Renewable Energy

Electricity

o Increasing fuel cost (oil, natural and even coal and nuclear) would
necessitate energy conservation.

o Energy conservation has the ability to defer capacity expansion

o It would delay new plants and thus rate increases

55
55
 Depletable to Renewable Energy
Electricity

Ways to Address Increasing Electricity Demand

❑ Promote investments in energy conservation

❑ Peak-load pricing attempts to impose the full marginal cost

❑ Deregulate electricity production

▪ Historically, electricity was generated by regulated monopolies

▪ Deregulation (generators) would produce lower electricity rate because of
competition

56
56
 Depletable to Renewable Energy

Electricity

What happens when electricity deregulation is implemented?

❑ Lower price has not always been the results

❑ Has raised environmental concerns (lowest prices for fuel

sources)

57
57
Components of a Power System

58
58
 Depletable to Renewable Energy
Electricity

❑ On environmental concerns (lowest prices for fuel sources)

▪ Tradable energy certificate (TEC) is designed to facilitate transition to

renewable power

▪ TEC is transferrable and can be sold separately.

▪ Producer can recover the cost of producing RE from the sale of certificates

▪ Kyoto Protocol and the UNFCCC – creation of Clean Development

Mechanism (CDM)

▪ EU’s policy on energy transition and net-zero / decarbonization of electricity

(should come from RE and other clean energy sources)
59
59
 Depletable to Renewable Energy
Transition to RE

o Depletable sources have been exhausted

o Environmental cost of using depletable sources have become high

o Global climate is being jeopardized by current and prospective energy

consumption patterns

o 50 - 60% of GHG comes from energy

60
60
 Depletable to Renewable Energy
Renewable Energy Sources

o Hydroelectric Power – convert the kinetic energy from a flowing body of water
into electricity.
o Geothermal Energy – steam derived from the earth’s heat used to generate
electricity.
o Wind Power – beginning to penetrate the market but it has environmental effects
as well like noise and destruction to migratory pathways for bats and birds.
o Photovoltaics and Solar Energy – direct conversion of solar energy to electricity.
o Biomass Energy - is made from plant materials like rice hulls, sugarcane
(bagasse), vegetable wastes, including animal wastes

61
61
 Depletable to Renewable Energy
Renewable Energy Sources

❑ Ocean Energy – Ocean Thermal Energy Conversion (OTEC) is an energy

technology that converts solar radiation to electric power. OTEC systems use
the ocean's natural thermal gradient to drive a power-producing cycle.

It has environmental concerns – can impede sea life migration, silt build-ups
behind such facility.
❑ Green Hydrogen through electrolysis using renewable energy (solar and wind).
Water can be separated into oxygen and hydrogen through a process called
electrolysis.

❑ Blue Hydrogen is found in hydrocarbons that makes up of many fossil fuels

(gasoline, natural gas, methanol). Hydrogen can be separated using heat.

62
62
Energy Technologies

Geothermal Energy is a sustainable

and renewable energy source that
is still largely untapped. As an
environmentally-friendly resource it
has the potential to meet heating,
cooling and electricity demands.

The steam generated from the hot

springs is used to rotate the turbine
and produce electricity.

63
63
Energy Technologies
Hydropower plants harness water's
energy and use simple mechanics to
convert that energy into
electricity. Hydropower plants are actually
based on a rather simple concept -- water
flowing through a dam turns a turbine,
which turns a generator.

The water in the reservoir is

considered stored energy. When the
gates open, the water flowing through the
penstock becomes kinetic
energy because it's in motion. The
amount of electricity that is generated is
determined by several factors. Two of
those factors are the volume of water
flow and the amount of hydraulic head.
The head refers to the distance between
the water surface and the turbines.

64
64
Energy Technologies
Tidal energy is power produced by the
surge of ocean waters during the rise and
fall of tides.

Tidal energy is created using the movement

of our tides and oceans, where the intensity
of the water from the rise and fall of tides is
a form of kinetic energy.

Tidal power surrounds gravitational

hydropower, which uses the movement of
water to push a turbine to generate
electricity

Tidal Stream Generators make use of the

kinetic energy in waves to convert them to
electricity by making use of turbines

65
65
 Energy Technologies

A wind turbine turns wind energy into electricity using the aerodynamic force from the rotor blades, which
work like an airplane wing or helicopter rotor blade.

66
66
 Energy Technologies

The diagram above shows the key elements in a solar cell. Solar cells collect energy from
sunlight and convert it into electricity using a chemical reaction called the photovoltaic (PV)
process.

67
67
 Energy Technologies

Electrolysis is the process of using electricity to split water into hydrogen and oxygen. This reaction
takes place in a unit called an electrolyzer. Electrolyzers can range in size from small, appliance-size
equipment that is well-suited for small-scale distributed hydrogen production to large-scale, central
production facilities that could be tied directly to renewable or other non-greenhouse-gas-emitting
forms of electricity production.

68
68
Energy Technologies

69
69
Energy Technologies

70
70
MICHAEL OCHOADA SINOCRUZ
Email: msinocruz@sanbeda.edu.ph
msinocruz@doe.gov.ph
mike_sinocruz@yahoo.com

Mobile #: +63 9053130181

71